Approach

Investment Approach

Our investment strategy comprises three different, but complementary, elements – value, global and resources.

As with all money managers we seek to provide our clients with good returns at an acceptable level of risk. We believe we can do that by searching for undervalued assets around the world, as well as by employing asset classes (such as resources) that have an ability, at times, to move contrary to the broader market.

Obtaining such returns depends not upon following the paths and ideas already well trampled by “the herd”, but rather by endeavoring in an imaginative and intuitive fashion to unearth opportunities where others see only risk and uncertainty.

Whether our strategy leads to buying an overlooked holding company in Europe or a Canadian junior gold producer, we always ask ourselves the following question: if we buy this investment, does it improve the portfolio? If the answer is “yes”, it can only be because we satisfy ourselves that the new holding either contributes significantly to reducing the risk in the overall portfolio, or that it presents an exceptional value opportunity – or, preferably, both.

“Me too” investing is, almost by definition, the path to average performance at best. The possibility of better-than-average results can only exist by following disciplines not generally employed by the investing masses. Our contrarian strategy with its three elements is precisely such a discipline.

1. Value Strategy

Adrian Day Asset Management takes a disciplined, long-term approach to investing. Our role, as we see it, is to ferret out pockets of inefficiency and uncover equities selling at a discount to their real worth. We rely on fundamental financial analysis and we place great importance on management quality to predict the reliability of future cash flows and dividend streams. After acquiring underpriced equities, we are prepared to wait patiently for their worth to be recognized by the rest of the market.

From Benjamin Graham in the 1930s, who is usually credited with being the father of value investing, to Warren Buffett, whom many consider the greatest investor of modern times, a disciplined search for value has proven to be an invaluable strategy for patient investors. While countless other investing fads have come and gone, value investing is a method which we feel is timeless and applicable to all phases of the economic cycle.

2. Global Strategy

Serious investing requires an understanding of the dynamics of the global economy. Long-term trends – such as the rise or fall of certain major currencies – have important repercussions for all investors wherever they may live, or choose to invest. Isolationism in the economic or investment realm is no longer an option even for the wealthiest nation on the face of the planet.

Today’s free market economies are inextricably linked in what has, for all practical purposes, become one global marketplace. Events in one country often affect the economic performance of others. Yet most investment advisory firms concentrate on just one country, industry or type of financial vehicle.

Adrian Day Asset Management is different. We do not view a global approach as merely one alternative among various differing investment styles, but instead as the very essence of serious investing. Before undertaking a single investment our discipline requires us to understand how that investment “fits” with the trends that we see taking shape across the globe. And we also look to see how that particular investment, wherever it may be located, compares with similar investments in different parts of the world, a General Motors with Mercedes or Hyundai, for example.

Today’s sophisticated investing requires an experience in global markets that few investors can easily acquire on their own. Despite the Internet — perhaps because of it — simply obtaining reliable information about non-U.S. companies can be both difficult and expensive. Interpreting it is an undertaking beyond the reach of the large majority of private investors. Most prudent, thoughtful investors will ultimately opt for an investment advisor with global expertise. Adrian Day Asset Management fills that need, combining an essential global perspective built on a foundation of value investing.

3. Resources Strategy

A key focus of our investment strategy, and an area where the firm has particular expertise, is natural resources – such as precious metals (gold, silver, etc.), oil and gas, and base metals.

While resource stocks sometimes trade at multiples higher than typical value investments, they may play an important role in an investment portfolio due to their ability to act independently of, and often contrary to, the broader market. Commodities — and we appreciate that gold is much more than a mere commodity — can thus provide invaluable diversification benefits to a portfolio of equities, fixed income and real estate.

Another reason that we find resources to be an extremely attractive investment sector relates to macro global demographic trends and long-term growth in demand for resources. Global economic development depends critically upon natural resources; robust global economic growth tends to drive upwards the prices of most resources.

Growth in Asia and other “emerging” areas, particularly China, has spurred demand growth that we consider to be a long-lived secular trend. China is currently the dominant consumer of many resources including oil (#2 in the world) and copper (#1 in the world). We believe that significant exposure to natural resources represents an essential long-term “insurance policy” as well as growth play for serious investors.

Furthermore, because resource industries are cyclical, with high price volatility, they can present money managers with important trading opportunities and the potential to exploit reactionary market conditions such as panic selling or an overly optimistic outlook. The crash of oil in the late ’90s and subsequent snap back in prices is a good example of the volatility that can be exploited by an agile money manager with expertise in this sector.

Investment fads come and go, but value is never out of style.

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